How will China’s economic downturn impact the wider sporting world?
- There’s no doubt China’s economy is slowing down, the question now is how fast and how much?
- The sporting world took a big hit during the 2007-08 financial crisis, and could provide clues as to how it might be impacted in 2019 and beyond
China’s economic slowdown has begun.
The World Bank cut its growth projection for the world’s second largest economy for 2019, mostly due to weak exports and subsequent projections, tied to the larger trade war with the United States.
Whether this kick starts another massive global downturn like we saw during the 2007-08 financial crisis is another topic, but even China’s economy taking its foot off the gas in 2019 will have a multitude of impacts, rippling across various industries.
Professor Xiang Songzuo, from the Renmin University of China in Beijing noted in a speech, which went viral last month, that he read two internal reports, one saying China’s real growth was only 1.67 per cent and the other showing China was actually in economic recession. Xiang has not been heard from since.
Real estate is expected to slow, credit is expected to be less readily available and consumers will potentially clamp down on spending in China, here in Hong Kong, and invariably, all over the world.
The ripple effects of economic recession reach far and wide, so it is only natural the sporting world would take a hit.
Looking at the 2007-08 financial crisis, the sporting world definitely felt the pinch with one industry bleeding out the most – sponsorship.
PGA Tour events were cut, Mercedes-Benz dropped out of the ATP tour, and one of the most notable was General Motors not running any ads during the 2008 Super Bowl (they ran 11 in 2007).
Every league across the world felt pressure – the English Premier League, the NBA, the Daytona 500, the Tour de France and the Arena Football League even cancelled an entire season due to labour costs.
Leagues cut staff, merchandise sales dropped, and teams froze ticket prices in a bid to keep fans coming through the gates.
The outlier was China with the central government unleashing an incredible stimulus package and high levels of monetary expansion to weather the storm.
However, with China front and centre this time around, throwing money at another economic downturn may not be probable, or even possible.
Chinese consumers have a robust appetite for sports merchandise– everything from Los Angeles Lakers jerseys and New York Yankees baseball caps to Manchester United kits.
A 2018 PricewaterhouseCoopers study titled “China’s Next Retail Disruption” noted China has both the world’s largest retail and e-commerce markets in the world, surpassing the US.
To give you a figure of just how much sports merchandise Chinese consumers buy, sales revenue was estimated at around US$103.6 billion annually as of 2017, which puts the country’s sporting goods industry second only to the US.
Any clampdown on spending when it comes to Chinese consumers is going to hit various sports related companies hard – leading brands Nike and Adidas have come full steam for the Chinese market over the past few years.
Both reported double digit growth in China over the past few years which is big news given Nike is the third largest apparel company in the world, and Adidas is sixth, according to Forbes.
A lot of this has been buoyed by China’s exploding fitness industry as health consciousness rises amongst China’s middle class.
China has also spent billions of dollars on sports infrastructure, building arenas, stadiums and athletic facilities, largely backed by public money and is a big reason the country’s construction industry is booming – outside of residential real estate and its Belt and Road initiative of course.
No one wants to think about the worst, but if history has taught us anything we are now overdue for another massive global economic contraction.
Up until the 2007-08 financial crisis, the sporting world was largely thought to be bulletproof when it came to recessions. The latest global downturn changed all of that.
One can only hope China can find a way towards a soft landing rather than a hard crash, as not only the sporting world, but pretty much everyone has a stake in this game’s outcome.
